The wild runs in the crude-oil market have continued this week. On Tuesday, the March crude options expired and we saw the market close to a four dollar range. As the market approached settlement, it pushed above $54.00, a level we haven’t seen in nearly two weeks.
Crude has retraced nearly $4.00 since the high on Tuesday. Wednesday’s API (American Petroleum Institute) report said that the U.S. crude supply increased by 14 million barrels. This was the largest increase in week to week numbers in history. The supply of crude oil in the U.S. is at highs that we are not accustomed to seeing.
The latest moves up in crude to start the week have reminded me that this is a volatile market. But the higher price levels have not changed my view that crude has another move to the downside. Longer term, I am still a bit bearish, and I think we can see another push down to the $43 to $40 area.
The Trade
- I like buying the April Crude 44-42 put spread at 30 points ($300.00) or better.
- Risk is defined to the cost of entry plus fees and commissions.
- Full value of the spread at expiration on March 17th, is $2000.00.
- I am setting an initial target exit of 75 points.
- If you are able to trade multiple positions I would scale out at 20 point increments after the initial target. If crude does not continue to move lower, I would try and limit my loss to 15 points.
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For those interested, Walsh Trading is holding our weekly grain webinar Friday February 20th at 2 PM Central time. Please click here.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
